Bitcoin – Concept, Mechanism, Valuation, Technology, How to Buy, FAQs & more

These days, Bitcoin is making headlines in the financial industry. Since its foundation (2009) to the present moment, Bitcoin is considered special.

Especially among businessmen and entrepreneurs from different countries who often trade and exchange currencies, it continues to grab exceptional popularity.

Still, the word “Bitcoin” can be confusing for many people because although people know about it, still, they aren’t fully aware of it. 

If you are also one of those few people who are unclear about this currency and excited to know it better, this article is for you. 

From the basic introduction to its working nature of Bitcoin, we have covered everything in this article. So let’s dive in-. 

What is Bitcoin?

Bitcoin is a well-known crypto-currency or digital currency created in 2009. It is a digital currency because unlike other paper currencies (e.g., dollars and rupees) it has no physical existence. 

It is a completely digital asset, and the balances are kept electronically on systems.

However, it is a surprising fact that the identity of the person who invented Bitcoin was hidden from the world for a very long time. 

But later Australian entrepreneur Satoshi Nakamoto resolved this mystery and described himself as the founder of Bitcoin.  

However, people also identify it as the first example of crypto-currency.

It solves the mathematical problems related to monetary-exchange that businesses operational all over the world often experience. 

Thanks to advanced technology and software contribution that have brought easiness for people as now they can exchange currency electronically through Bitcoin. 

Moreover, it is a decentralized currency as no top-tier monetary authority, or central bank controls it. Hence, the currency is valued and used globally. 

If you have a computer system, you can easily set up your Bitcoin address and exchange funds digitally.

Next, we’ll discuss how this currency works, so you get a proper insight into its overall working behavior.

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How Bitcoin works?

The definition above has provided a quick overview of what is Bitcoin. It is a popular method used globally for monetary-exchange.

You can send and receive money using Bitcoin. But the next big question is “How Bitcoin works?”

It eliminates the need for conventional approaches used to exchange currencies in the global market.

Transfers through Bitcoin are easier and faster since it is completely electronic, leading to a lower transaction fee. This currency has only 21 million coins which makes it a fixed asset.

This quality transforms it into the best solution for worldwide businesses that often experience mathematical issues with complex currency calculation. 

Cryptography is the primary method used by Bitcoin to create virtual money or digital currency and eliminate the hassles. 

This method includes making and breaking of codes using a set of protocols and advanced processes.

Apart from this unique calculation concept, Blockchain is another most notable thing that makes Bitcoin quite interesting. 

Blockchain Technology

Bitcoin runs on the blockchain protocol, which is an advanced network that also safe-keep the transactions made in the bitcoins. 

As the name sounds, Blockchain represents a collection of blocks. However, every block comprises a collection of transactions. 

This Cryptocurrency is also a collection of computers, and each computer contains the collection of blocks that are aligned in a chronological order which brings transparency in the whole structure.

It ensures that no one can initiate a fraudulent activity because every person will see the same list of blocks. 

However, the concept of Blockchain has evolved a lot over time. Still, people denote it as Bitcoin Blockchain. 

For instance, in other types of blockchain systems, blocks store additional information, such as emails, contracts, certificates etc. But in Bitcoins, only information related to transactions are stored. 

So how Bitcoin works? However, it is not just about the working nature of this currency, but how Bitcoins have value has been one of the most controversial subjects?

So let’s reveal the whole process. 

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Why do Bitcoins have Value?

Bitcoin can be viewed as a convenient way to send and receive money over the internet. 

It is regulated by a decentralized network with a straightforward set of laws, thereby providing an alternative to those who don’t want to use fiat money managed by the central bank. 

But how Bitcoin has value and which things set the price of Bitcoin have always been a debatable subject. 

Still, before we throw a comprehensive discussion on this topic, let’s find out how and why currencies have value.

Bitcoins Value Generation Process

The market is the most dominating factor that influences the price of the currency. Bitcoins aren’t too different from paper currency. 

They are also influenced by market factors that decide the value of this digital currency. 

Still, this cryptocurrency is special because they are handy and allow you to buy and sell goods and services worldwide.

Moreover, Bitcoin is decentralized so one can easily use them without any requirement of middlemen. 

Any person can use it; you just need a decent internet connection that also raises its demand in the market. Hence, as compared to other currency, it is flexible, economical and highly convenient. 

Though any legal authority doesn’t impose the value of Bitcoins nor any government and central bank set the price of this cryptocurrency. 

It all depends upon the infrastructure, code, adoption and scarcity related factors that consider Bitcoin a successful currency. These factors bring significant up and rise in their value. 

Why Bitcoin is a Successful Currency?

Here are the various reasons which can tell you about why Bitcoin is a successful currency.

Scarcity

Scarcity is the leading factor that impacts the value of a currency. This factor predominantly casts light upon the short-supply of a currency. 

However, extensive supply can also lead to a rise in the prices of goods and perhaps raise the probability of economic collapse. 

Eventually, if the money supply is small, it can still trigger economic issues around. But when it comes to this currency, the definition of scarcity is changed.

There are only 21 million bitcoins used by the general public, which keeps the inflation impact fairly limited and manageable. 

Even though, the bitcoin experience shortage of virtual currency, the whole situation is comparatively easy to control. In the case of deflation, only fewer bitcoins will be available.  

Divisibility

The currency that can be further divided into smaller units in an incremental order is a successful currency.

And bitcoin proves to be a successful currency because it also consists of the smallest bitcoin unit (denoted with Satoshi) in an incremental form. 

Apart from that, it is flexible because of its accurate divisibility which ensures precision in the calculation.  

Utility

Utility raises the value of a currency because it shows how much a currency is effective and useful in a country.

However, it is also essential that individual can trade even with the single unit of the currency and purchase any good and service against it. 

This ensures every participating identity within the trading process can feel satisfied.

Moreover, it should be handy and light enough so that an individual can easily carry it and take it along with them to any location. 

Since Bitcoin has no physical appearance and currency is electronically transferred from one address to another without any need of paper currency and coins, it is successful. 

Transferability

Parties involved in currency trading should experience ease in sharing the currency. Without any hassle, the currency should be readily transferable. 

Even though the currency is exchanged between two nations, it should provide better transferability. Since Bitcoin is a digital currency, so it is easy to share at any time, from any location. 

Therefore, it proves to be a successful currency in terms of transferability.

However, the Bitcoin exchange transaction fees are fairly lower, which makes it stand out as a successful currency option to choose. 

Durability

A currency can’t be just a piece of paper. It should be durable enough that it can last long for generations. 

Else it can turn a big loss for an individual. But with Bitcoin, this barrier becomes easy to avoid because it is an electronic currency. 

It means an individual only needs a decent internet connection to share the currency from one person to another without the fear of wear and tear. 

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How to Buy Bitcoin? – Step by Step Process

If you want to exchange your currency in Bitcoin, follow the steps stated below:

Find a Trusted Digital Wallet

“Digital wallet” is the first thing you need to consider before buying Bitcoin. Here, you will store your Bitcoin, and only after then, you can exchange your digital currency. 

In the wallet, you get tons of features and an advanced level of protection.  However, these things are essential because this cryptocurrency isn’t like any online payment portal but more than that. 

The transactions held in Bitcoin are processed in billions of dollars. Hence, it is fully secured. If you are just starting out, choose the wallets first that are readily accessible on the internet. 

For example- you can use Bitcoin Core, Exodus, and Private Key wallets.

Personal Documents

Once you find the best place where you can buy Bitcoin, take further steps. Submit your personal documents. Don’t worry.

These documents only ask you to verify your identity so that your money will stay safe. 

For the verification, you can either use your driving license or passports. However, more documents may be required, so make sure you read all the asked-details and move ahead accordingly. 

Secure Internet Connection

If you are willing to trade bitcoin online, make sure you aren’t using an unsecured internet connection.

It is unlike other online payment portals because you can sometimes exchange a huge amount with someone else. 

Try to avoid using public wifi or unknown network because cybercriminals can easily hack your account and you can experience any mischievous activity. 

Even though you are just starting, use your own secure Internet connection before filling the information. 

Bank Account or Transaction Cards

After successfully completing the steps stated above, you can choose bank transfer, credit card and debit card option to buy your first-ever bitcoin.

This can be done by visiting a reliable bitcoin exchange. Don’t worry, it is available online, and you can find many. Your purchased cryptocurrencies are then transferred to the designated wallet.

However, in most cases, the payment mode you choose may come with major upsides and downside.

So make sure you are reading all the required details carefully and taking the right action. Few payment modes may ask you for higher charges.  

Bitcoin Exchange

Bitcoin exchange is a place where you will be purchasing the real Bitcoins. But, make sure it should be trustworthy; else you may harm yourself financially. 

It can be a bit confusing to you, as tons of options are available on the internet. That’s why it is a way better approach to first check the top-performing exchange reviews and take the right decision. 

Don’t get confused, “exchange is quite similar to any online trading platform where you can buy and sell stocks.

However, many exchanges also offer you wallets, but you need to consider that this isn’t their feature. 

If you have a more secured wallet option, you can choose it additionally and store a massive amount of bitcoin in that. If security is your priority, these little things make a smart sense.  

FAQs on Bitcoin

Here are the important questions asked related to Bitcoin Investment.

How to send Bitcoin from one address to someone else?

Even though you have already bought a Bitcoin and aspiring to send it to someone else, the first thing you will be using here is your unique Bitcoin address. 

However, this address will be in alphanumeric character in a long string that will be generated randomly at your exchange-platform. Along with this address, you will receive a unique private key. 

But make sure, no one can steal this key, as it should be completely private. Else, a little mistake can easily wipe out the entire amount from your wallet. 

How to store and frequently manage Bitcoin in a wallet?

You can frequently store and manage bitcoins in your wallets. But often few tasks become slightly problematic when one finds it hard to track all the keys. 

Still, this problem has been eliminated by many online platforms as you do not need to track all these keys manually on your own. 

However, most exchanges offer you ‘wallets’ feature, but they can be unreliable because when you are sending or receiving this cryptocurrency, your network should know about it.

Else it may create confusion. On a reliable Wallet, every detail is written in a ledger so that a person doesn’t experience any trouble.

Do I need to pay taxes?

Cryptocurrencies are taxable. Since Bitcoin is the most common type of cryptocurrency, they aren’t tax-exempt for sure.

Therefore, if you are buying or selling a good or service and transactions are in this cryptocurrency, you should report the income tax department.

If you are trading bitcoins, you should mention the gains incurred from the training. 

Bitcoin – Conclusion

Ultimately, now you are fully aware of what is Bitcoin and how it works. It’s no surprise that this powerful digital-currency option has come a long way. 

In the future, people’s expectations from Bitcoin are also very high. Hence, whether you plan to trade bitcoin or just want to experience it, make sure you remember all the things that make Bitcoin helpful. 

In this modern era, this currency is evolving into the most necessary thing. Businesses operational worldwide can exchange currency in a hassle-free way. 

Still, we can’t forget that it is a digital currency with no physical appearance and is stored and managed electronically. It raises concerns as well because the digital world isn’t fully secure. 

But in the last couple of years, with the advancement of technology, this problem appears to be eliminated by developers. 

Many times, the user’s own mistake pushes them into a big crisis. So stay attentive and very careful while using Bitcoins.  

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